Founder of MySpace demands federal probe

October 06, 2006|By Bloomberg News

NEW YORK -- MySpace.com founder Brad Greenspan yesterday demanded a federal probe into the sale of the networking Web site to News Corp., the media company led by Rupert Murdoch, claiming the deal defrauded shareholders of more than $20 billion.

In a report at Freemyspace.com, Greenspan alleges the sale defrauded shareholders of MySpace.com parent Intermix Media Inc. He is seeking an investigation by the U.S. Securities and Exchange Commission, the Justice Department and the Senate.

Greenspan sued MySpace.com in February, saying the $580 million paid by News Corp. last year didn't reflect the growth prospects. Registered users at the popular social networking Web site have more than doubled this year. Greenspan said in his report MySpace would be worth billions of dollars had it stayed independent and sold shares to the public.

"If MySpace had stayed independent it wouldn't be worth as much as now," said Laura Martin, an analyst at Soleil Securities in Pasadena, Calif., who rates News Corp. shares "hold" and doesn't own them. "Fox created the value."

News Corp. offered $12 a share for Intermix Media in July 2005. Greenspan, who owned 10 percent of Intermix, offered $13.50 a share three months later in an attempt to block the purchase. His offer was turned down by Intermix's board and News Corp. completed the acquisition that month.

Greenspan reported yesterday on what he calls "deliberate steps" taken by MySpace's management to "withhold and manipulate information." He also calls for an unwinding of the purchase.

In July 2005, Intermix Chief Executive Officer Richard Rosenblatt and Ross Levinsohn, the head of Fox's Internet unit, "knew MySpace was well on its way to being worth $20 billion at the time they struck the deal to sell," Greenspan said in his report. He quoted e-mails between the two executives dated July 13, 2005, and July 18, 2005, on the day of the sale agreement, to back up his allegation.

"The public can read what took place behind the scenes and how shareholders were blatantly misled into voting for a quick and unfair sale to News Corp.," Greenspan said.

Class A shares of News Corp. rose 17 cents to close at $19.74 yesterday on the New York Stock Exchange.

"This is simply a case of sour grapes making for loud complaints," MySpace spokeswoman Julie Henderson said in an e- mailed statement. "We've strategically built this business since the acquisition and are just now beginning to realize real financial value."

MySpace.com and other sites run by News Corp.'s Fox Interactive division ranked as the sixth most-popular in the United States in August, and were the fastest-growing among the top 15 tracked by ComScore Networks Inc., a market researcher.

In the past year, Murdoch has spent more than $1.2 billion on Internet companies including MySpace.com to take a bigger share of the online advertising market.

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